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Old 07-10-2012, 17:18   #1
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Finance ins and outs

So I finally think I am at the point of pulling the trigger and have worked to set myself up for the “BIG PURCHASE.” Saved our asses off to have the required 20% down, know what boat we want (at least make) 440 Lagoon, Owner Version or clean charter, $350K. Have not picked out the exact boat yet but think the numbers will work with some shopping and patience.

The issue seems to be the more I read into financing the bigger nightmare it seems to become. I have the down, meet the 40% debt to income ratio but now I read a new one to me, Payment to Income Rule (PTI) 15%. Most often in order to be helpful specifics are needed so here it is:

Military member, US Army, I have 15 years in so 5 more to go. My base pay without additional allowances is $4600/month. We have 80K to put down, 70K down and 10K for haul out, inspections, travel etc…. I have Zero CC balances, one car payment, $550/month and have owned a house for the last 9 years with around 50K in equity, rented for the last 4 years while stationed overseas. 784 beacon. I am also now being told that they want me to have already had a loan for the amount I am asking for. I bought my house at 160K and was looking to finance 280K on the boat. I think I could liquidate and knock that down to 200K but…. I understand the market but holy crap, 15 year employment, high beacon, 20% down, no debt and finance payment less than 40% of my income.

I guess my question is, are the only people that buy a boat in this price range just sitting on a heap of cash? More than what the required down payment is? Just looking for some input, I come up with save longer but hate that idea, ready now! Well, soon as I get out of Afghanistan anyway. Thanks in advance for any input of your experiences with this.
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Old 07-10-2012, 17:34   #2
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Re: Finance ins and outs

I feel your pain but unfortunately can't offer any advice. I am sure they are also looking at your home mortgage as part of your monthly expenses even though it is rented out. I presume you will live on the boat and continue to rent out the house.

I can't see you making ends meet otherwise. That's probably how they are looking at it.

OTOH - Sell the house and then you don't look reliable - you look homeless...

Catch 22...
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Old 07-10-2012, 17:59   #3
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Re: Finance ins and outs

I met a friendly local banker when I bought my 2nd boat. Like you, I was in the service, had 1/3rd downpayment and wanted to pay off the boat by the end of my 4 year contract which meant payments of something like 60% of my income. We sat down and talked about the Navy. sailing, etc for quite a while. Think he looked at what I had been planned as what he would have liked to have done with his life when he was younger. When the terms of the loan and the payments came up, I told him how I'd gotten the down payment together by living on a much smaller boat and existing on way less spare money that i was going to have with this loan. He was a bank VP and branch manager and apparently had a lot of latitude on approving loans and I got the loan. That was then, this is now. Dodd/Frank and other banking regulations have taken almost all the authority away from the smaller banks in the qualification requirements. Unless you can put a check mark in all the pukas, you don't get a loan. The same isn't true if you are Citi Bank and need to borrow billions because of your stupid lending practices but that's a horse of another color. Unless you go to the guys that break legs as a sidelines to their loan business, you may be out of luck.

Now, why in the hell do you want to buy such a damned expensive boat. You can get an awfully nice used multi for half what you are proposing to spend and a mono hull for a 1/4 of that. Even though you will have a nice pension, you are still going to have one hell of a loan balance when full pay stops. You are going to be a slave to the payments for the foreseeable future. If you really want to go sailing, I'd set my sights lower to a boat that I can have free and clear by the time I retire. It doesn't take much money to cruise if you live reasonably but you don't want to exist in poverty because of that fancy boat. We had a paid off boat when I got out of the Navy at 29 and went off to SoPac for a couple of years without the benefit of a pension. Will you be able to do the same with your planned boat??
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Old 07-10-2012, 18:43   #4
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Re: Finance ins and outs

Or you could sell your house, buy a really nice used boat for $100,000 cash and when you retire you will be debt free, have a nice retirement income to set sail and don't look back. Between now and retirement, you can take your extra money and buy all the do-dads for the boat.

It is really nice waking up on Monday morning and spend the morning drinking coffee until lunch time on the deck of your boat and not give a thought about going to work. That is freedom, debt is slavery. That is my advice.
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Old 07-10-2012, 18:52   #5
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Re: Finance ins and outs

The house is a catch 22, thinking on selling it taking the cash using it for a down and re using my VA loan to buy more of a "rental" property as well as a more affordable home for a base.

Roverhi
My plan sounds pretty much exactly like what you did. The reason for the Boat is this is IT, the final show. Love the boat, plan to be on it till the end of my days at least. I have ran the #'s many many times and I need to buy soon in order to also be free and clear on this boat when we retire. Since your military you know even though I listed my income, I recieve Housing and a couple other pays as well, wife works and we intend to be live aboards soon. Paying off the boat is a huge priority. Mandatory before we shove off.
As to why that boat, I have been to Miami boat show a couple times, walk the Docks in Okinawa about a hundred times and it is just it. Love everthing about the dang thing. I know there are very nice boats out their and continue to try to talk myself and the better half into it but just can't. At least not unless someone said no way, and even then it is more of a want to live on it now but we could just as easy take a couple more years to save up. That would probably actually be a bit smarter other than the fact my BAH would cover the boat payment 100% and I could use all my check to go to principal and live off the wifes check. I now this will make some cringe but I look at it as buying our last home and not just a "boat."

The plan is to live off my retirement check. Have to be 100% debt free to do it.

Thanks, James
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Old 07-10-2012, 19:00   #6
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Re: Finance ins and outs

If you plan to live debt free, which is wise, why would do destroy that with the worst form of debt - a depreciating asset?
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Old 07-10-2012, 19:15   #7
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Re: Finance ins and outs

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Originally Posted by S/V Illusion View Post
If you plan to live debt free, which is wise, why would do destroy that with the worst form of debt - a depreciating asset?
It is only a depriciating asset once you sell. We will always have a rental property, even with depreciation the wife should get a decent chunk of change for it if we keep it up. (figure I will go first)
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Old 08-10-2012, 11:57   #8
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Re: Finance ins and outs

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Originally Posted by VERTIGO View Post
It is only a depriciating asset once you sell. We will always have a rental property, even with depreciation the wife should get a decent chunk of change for it if we keep it up. (figure I will go first)
I have a friend who retired from the air-force, has a house in Hawaii the size of mine but with triple the house payment I pay. He was able to make it on his air force salary because they gave a variable housing allowance. Will they do that for a boat?
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Old 08-10-2012, 12:49   #9
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Re: Finance ins and outs

You are only showing us one quote. Have you shopped your loan scenario to multiple banks? Talk to a bank that specializes in marine financing as well. I'm curious to see your findings as I am about a year away from doing exactly what you are doing in a slightly less expensive boat.
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Old 08-10-2012, 13:06   #10
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Talk to Navy Federal Credit Union. They are great for helping find a way to afford what you want. They have great rates.
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Old 08-10-2012, 23:03   #11
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Re: Finance ins and outs

tbo: Yes I will recieve BAH (Housing Allowance) for as long as I am on active duty, so 5 more years which is one reason I want to purchase now so I can use that "extra" money to make the payment. Once retired you no longer recieve any "special pays" only a % of base pay.

jost: In the works now, in Afghanistan for a few more months so just checking to see the offers on the prequalification. As long as my situation does not change I should be able to lock one in when I get ready to buy. I did check USAA, kinda crazy, been with them for over 11 years with well over 10 loans completed and have 60K worth of credit cards with them (all zero balance) but they would only give me 80K. That was with me putting 60k down and asking for 240K. So they are out.

SV Patty: After trying through USAA I think I am going to stick with a company that specializes in Yacht loans. Everyone said USAA would be a good option to include a rep from Essex, they advertise they do them but not specialized enough, they did not even ask me about the boat I wanted to buy. Think they are a very good option for under 100K. I will be doing a ton of shopping over the next few months.
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Old 08-10-2012, 23:08   #12
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Re: Finance ins and outs

I'd suggest trying a credit union like B.E.C.U. or maybe even Navy Federal.
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Old 09-10-2012, 09:00   #13
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Re: Finance ins and outs

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Originally Posted by VERTIGO View Post
I guess my question is, are the only people that buy a boat in this price range just sitting on a heap of cash?
Short answer: yes. Either that or they have substantial assets. Or they have a materially higher income than yours.

Don't want to burst your bubble, but with your assets and income, you really should be looking at well-cared for boats that are a few years old. You can get what you want for half as much. Maybe even less than that.

And if you have absolutely fallen in love with this boat, and absolutely must buy it new, then you've made the first mistake. Don't ever fall in love with a boat until AFTER you have bought it!
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Old 09-10-2012, 09:45   #14
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Re: Finance ins and outs

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Short answer: yes. Either that or they have substantial assets. Or they have a materially higher income than yours.

Don't want to burst your bubble, but with your assets and income, you really should be looking at well-cared for boats that are a few years old. You can get what you want for half as much. Maybe even less than that.

And if you have absolutely fallen in love with this boat, and absolutely must buy it new, then you've made the first mistake. Don't ever fall in love with a boat until AFTER you have bought it!
First of all, please expand on your "short answer". Also, at $350k he is obviously budgeting for an older Lagoon 440 as that would be at the low end of pricing on used L440's.
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Old 09-10-2012, 12:26   #15
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Re: Finance ins and outs

Okay, I'll expand. Most people who are borrowing $280k to buy a boat have one of three things that he doesn't--more income, a larger down payment, or other assets that can act as additional collateral.

He wants to borrow an amount that is more than 5 times his annual income. He wants to borrow an amount that is more than 1.5 times his total net worth (if I'm reading his numbers right). A boat--even one you plan to live on--is considered by lenders to be a "luxury" item. They don't look at it the way they do a home. That means that the ratios that are applied for a normal home mortgage don't apply here.

I mean no offense to the OP, but this is just a lot more boat than he can afford, in my opinion. Apparently also in the opinion of the underwriters at USAA.
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